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Destination Maternity Reports Second Quarter Fiscal 2019 Results

September 17, 2019 9:00 AM

- Operating loss of $2.2 million versus $2.8 million in prior year period

- Adjusted EBITDA before other charges of $2.0 million versus $4.0 million in prior year period

- Gross Profit Margins of 51.4% versus 51.7% in prior year period

- Selling, General and Administrative expenses decline 9.9% from prior year period

- Engaged Greenhill & Co. to Evaluate Strategic Alternatives to Maximize Shareholder Value

MOORESTOWN, N.J.--(BUSINESS WIRE)-- Destination Maternity Corporation (NASDAQ: DEST), the world's leading maternity apparel retailer, today announced financial results for the second quarter of fiscal 2019 ended August 3, 2019 compared to the second quarter of fiscal 2018 ended August 4, 2018.

Commentary

“Our results this quarter illustrate the ongoing headwinds facing our business. While cost savings initiatives drove reductions in SG&A expense and a pullback in promotional cadence helped to hold margins in line with the prior year, sales declines of 11.9% year-over-year more than offset the benefits to our bottom line,” said Dave Helkey, Chief Financial Officer of Destination Maternity.

“While we continue to believe we have a compelling business and remain focused on delivering long-term profitable growth, challenges persist and more needs to be done. As part of our ongoing review of the Company’s strategic initiatives, our Board of Directors has announced that it has engaged Greenhill & Co to commence a comprehensive review of strategic alternatives. We believe that it is in the best interests of our shareholders to conduct a thorough evaluation of all options reasonably available to the Company to position the business for success.”

Review of Strategic Alternatives

At the direction of its Board of Directors, Destination Maternity is reviewing various potential strategic and financial alternatives. The strategic alternatives expected to be considered include, but are not limited to, a sale or merger of the Company, continuing to pursue value-enhancing initiatives as a standalone company, along with capital structure optimization that may involve potential financings and/or the sale or other disposition of certain businesses or assets.

The company has retained Greenhill & Co as financial advisor to assist with its strategic alternatives review.

There can be no assurance that this process will result in the approval or completion of any particular strategic alternative or transaction in the future. The Company does not intend to disclose developments or provide updates on the progress or status of the review of strategic alternatives unless and until required or when the Company determines appropriate.

Second Quarter Fiscal 2019 Financial Results

First Six Months of Fiscal 2019 Financial Results (26 Weeks Ended August 4, 2019)

Adjusted EBITDA before other charges, and adjusted net loss, are defined in the financial tables at the end of this press release.

Other Financial Information

Retail Locations

Three Months Ended

August 3, 2019

August 4, 2018

Store Openings (1)

0

2

Store Closings (1)

6

6

Period End Retail Location Count (1)

Stores

446

480

Leased Department Locations

491

634

Total Retail Locations

937

1,114

  1. Excludes international franchised locations.

Financial Outlook

The Company is withdrawing its Adjusted EBITDA guidance for the remainder of 2019 as a result of the announced review of strategic alternatives.

Conference Call Information

The Company will host a conference call regarding second quarter fiscal 2019 financial results that includes comments on the results from members of our senior management on Tuesday, September 17, 2019 at 10:00 a.m. Eastern Time.

Investors and analysts can listen to this conference call by dialing (800) 219-6970 in the United States and Canada or (574) 990-1028 outside of the United States and Canada. The call will also be available on the investors section of the Company's website at http://investor.destinationmaternity.com. Passcode for the conference call is 6190426.

In the event that you are unable to listen to the call, a replay will be available at 1:00 p.m. Eastern Time on Tuesday, September 17, 2019 through 1:00 p.m. Eastern Time on Tuesday, September 24, 2019 by calling (855) 859-2056 in the United States and Canada or (404) 537-3406 outside of the United States and Canada. Passcode for the replay is 6190426.

About Destination Maternity

Destination Maternity is the leading designer and omni-channel retailer of maternity apparel in the United States, with the only nationwide chain of maternity apparel specialty stores, as well as a deep and expansive assortment available through multiple online distribution points, including our three brand-specific websites. As of August 3, 2019, we operate 937 retail locations, including 446 stores in the United States, Canada and Puerto Rico, and 491 leased departments located within department stores and baby specialty stores throughout the United States and Canada. We also sell our merchandise on the Internet, primarily through our Motherhood.com, APeaInThePod.com and DestinationMaternity.com websites. We also sell our merchandise through our Canadian website, MotherhoodCanada.ca, through Amazon.com in the United States, and through websites of certain of our retail partners, including Macys.com. Our 446 stores operate under three retail nameplates: Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®. We also operate 491 leased departments within leading retailers such as Macy’s®, buybuy BABY® and Boscov’s®. Generally, we are the exclusive maternity apparel provider in our leased department locations.

Reconciliation of Non-GAAP Financial Measures

This press release and the accompanying financial tables contain non-GAAP financial measures within the meaning of the SEC's Regulation G, including 1) adjusted net loss, 2) adjusted net loss per share - diluted, 3) Adjusted EBITDA, 4) Adjusted EBITDA before other charges, 5) Adjusted EBITDA margin, and 6) Adjusted EBITDA margin before other charges. In the accompanying financial tables, the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. The Company's management believes that each of these non-GAAP financial measures provides useful information about the Company's results of operations and/or financial position to both investors and management. Each non-GAAP financial measure is provided because management believes it is an important measure of financial performance used in the retail industry to measure operating results, to determine the value of companies within the industry and to define standards for borrowing from institutional lenders. The Company uses each of these non-GAAP financial measures as a measure of the performance of the Company. In addition, certain of the Company's cash and equity incentive compensation plans are based on the Company's level of achievement of Adjusted EBITDA before other charges. The Company provides these various non-GAAP financial measures to investors to assist them in performing their analysis of its historical operating results. Each of these non-GAAP financial measures reflects a measure of the Company's operating results before consideration of certain charges and consequently, none of these measures should be construed as an alternative to net income (loss) or operating income (loss) as an indicator of the Company's operating performance, as determined in accordance with generally accepted accounting principles. The Company may calculate each of these non-GAAP financial measures differently than other companies.

Forward-Looking Statements

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this press release or made from time to time by management of the Company, including those regarding earnings, net sales, comparable sales, other results of operations, liquidity and financial condition, and various business initiatives, involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any such forward-looking statements: the strength or weakness of the retail industry in general and of apparel purchases in particular, our ability to successfully manage our various business initiatives, the success of our international business and its expansion, our ability to successfully manage and retain our leased department and international franchise relationships and marketing partnerships, future sales trends in our various sales channels, unusual weather patterns, changes in consumer spending patterns, raw material price increases, overall economic conditions and other factors affecting consumer confidence, demographics and other macroeconomic factors that may impact the level of spending for apparel (such as fluctuations in pregnancy rates and birth rates), expense savings initiatives, our ability to anticipate and respond to fashion trends and consumer preferences, unanticipated fluctuations in our operating results, the impact of competition and fluctuations in the price, availability and quality of raw materials and contracted products, availability of suitable store locations, continued availability of capital and financing, our ability to hire, develop and retain senior management and sales associates, our ability to develop and source merchandise, our ability to receive production from foreign sources on a timely basis, our compliance with applicable financial and other covenants under our financing arrangements, potential debt prepayments, the trading liquidity of our common stock, changes in market interest rates, our compliance with certain tax incentive and abatement programs, war or acts of terrorism and other factors set forth in the Company's periodic filings with the SEC, or in materials incorporated therein by reference.

Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and persons reading this announcement are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this announcement. The Company assumes no obligation to update or revise the information contained in this announcement (whether as a result of new information, future events or otherwise), except as required by applicable law.

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except percentages and per share data)

(unaudited)

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Net sales

$

84,901

$

96,395

$

179,114

$

199,622

Cost of goods sold

41,253

46,530

83,869

94,354

Gross profit

43,648

49,865

95,245

105,268

Gross margin

51.4

%

51.7

%

53.2

%

52.7

%

Selling, general and administrative expenses

45,153

50,095

93,643

101,952

Store closing, asset impairment and asset disposal expenses

778

672

1,647

1,641

Other (income) charges, net

(119

)

1,923

543

3,073

Operating loss

(2,164

)

(2,825

)

(588

)

(1,398

)

Interest expense, net

1,340

1,144

2,755

2,301

Loss before income taxes

(3,504

)

(3,969

)

(3,343

)

(3,699

)

Income tax provision

31

56

62

112

Net loss

$

(3,535

)

$

(4,025

)

$

(3,405

)

$

(3,811

)

Net loss per share— Basic

$

(0.25

)

$

(0.29

)

$

(0.25

)

$

(0.28

)

Average shares outstanding— Basic

13,871

13,823

13,848

13,831

Net loss per share— Diluted

$

(0.25

)

$

(0.29

)

$

(0.25

)

$

(0.28

)

Average shares outstanding— Diluted

13,871

13,823

13,848

13,831

Reconciliation of Net Loss to Adjusted Net Loss

Net loss, as reported

$

(3,535

)

$

(4,025

)

$

(3,405

)

$

(3,811

)

Other (income) charges, net

(119

)

1,923

543

3,073

Income tax effect of other (income) charges, net

28

(474

)

(127

)

(746

)

Deferred tax valuation allowance related to cumulative losses

824

991

793

924

Adjusted net loss

$

(2,803

)

$

(1,585

)

$

(2,195

)

$

(560

)

Adjusted net loss per share - diluted

$

(0.20

)

$

(0.11

)

$

(0.16

)

$

(0.04

)

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

August 3, 2019

February 2, 2019

ASSETS

Current assets:

Cash and cash equivalents

$

1,142

$

1,154

Trade receivables, net

7,012

7,945

Inventories

67,691

70,872

Prepaid expenses and other current assets

9,961

9,407

Total current assets

85,806

89,378

Property and equipment, net

48,215

51,483

Operating lease assets

125,283

—

Other assets

5,835

5,313

Total assets

$

265,139

$

146,174

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Line of credit borrowings

$

23,300

$

20,400

Current portion of long-term debt

3,841

4,372

Accounts payable

21,477

21,854

Operating lease liabilities

30,301

—

Accrued expenses and other current liabilities

24,226

31,056

Total current liabilities

103,145

77,682

Long-term debt

21,343

21,784

Operating lease and other non-current liabilities

119,225

19,557

Total liabilities

243,713

119,023

Stockholders’ equity

21,426

27,151

Total liabilities and stockholders’ equity

$

265,139

$

146,174

Selected Consolidated Balance Sheet Data

(in thousands)

(unaudited)

(unaudited)

August 3, 2019

February 2, 2019

August 4, 2018

Cash and cash equivalents

$

1,142

$

1,154

$

1,317

Inventory

67,691

70,872

67,753

Property and equipment, net

48,215

51,483

59,177

Line of credit borrowings

23,300

20,400

7,300

Total debt

48,484

46,556

35,983

Stockholders’ equity

21,426

27,151

37,415

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, except percentages and per share data)

(unaudited)

Six Months Ended

August 3, 2019

August 4, 2018

Operating Activities

Net loss

$

(3,405

)

$

(3,811

)

Adjustments to reconcile net loss to net cash provided

by operating activities:

Depreciation and amortization

6,992

7,961

Stock-based compensation expense

290

584

Loss on impairment of long-lived assets

1,172

1,519

Loss on disposal of assets

259

68

Grow NJ award benefit

(1,296

)

(1,412

)

Amortization of deferred financing costs

346

336

Changes in assets and liabilities:

Decrease (increase) in:

Trade receivables

933

(145

)

Inventories

3,181

3,503

Prepaid expenses and other current assets

(554

)

479

Operating leases and other non-current assets

8,583

12

Increase (decrease) in:

Accounts payable, accrued expenses, operating leases and other current liabilities

(4,822

)

(1,831

)

Operating leases and other non-current liabilities

(10,262

)

(1,417

)

Net cash provided by operating activities

1,417

5,846

Investing Activities

Capital expenditures

(3,780

)

(2,579

)

Net cash used in investing activities

(3,780

)

(2,579

)

Financing Activities

Decrease in cash overdraft

759

(2,657

)

Decrease in line of credit borrowings

2,900

(700

)

Proceeds from long-term debt

1,802

2,500

Repayment of long-term debt

(3,075

)

(2,537

)

Deferred financing costs paid

—

(160

)

Withholding taxes on stock-based compensation paid in connection

with repurchase of common stock

(35

)

(29

)

Net cash used in financing activities

2,351

(3,583

)

Effect of exchange rate changes on cash and cash equivalents

—

(2

)

Net Decrease in Cash and Cash Equivalents

(12

)

(318

)

Cash and Cash Equivalents, Beginning of Period

1,154

1,635

Cash and Cash Equivalents, End of Period

$

1,142

$

1,317

DESTINATION MATERNITY CORPORATION AND SUBSIDIARIES

Supplemental Financial Information

Reconciliation of Net Loss to Adjusted EBITDA(1)

and Adjusted EBITDA Before Other Income and Charges,

and Operating Loss Margin to Adjusted EBITDA Margin

and Adjusted EBITDA Margin Before Other Income and Charges

(in thousands, except percentages)

(unaudited)

Three Months Ended

Six Months Ended

August 3, 2019

August 4, 2018

August 3, 2019

August 4, 2018

Net loss

$

(3,535

)

$

(4,025

)

$

(3,405

)

$

(3,811

)

Income tax provision

31

56

62

112

Interest expense, net

1,340

1,144

2,755

2,301

Operating loss

(2,164

)

(2,825

)

(588

)

(1,398

)

Depreciation and amortization expense

3,438

3,910

6,992

7,960

Loss on impairment of long-lived assets

610

632

1,172

1,519

Loss on disposal of assets

71

55

259

68

Stock-based compensation expense

147

256

290

584

Adjusted EBITDA (1)

2,102

2,028

8,125

8,733

Other (income) charges, net

(119

)

1,923

543

3,073

Adjusted EBITDA before other charges

$

1,983

$

3,951

$

8,668

$

11,806

Net Sales

$

84,901

$

96,395

$

179,114

$

199,622

Operating loss margin (operating loss as a percentage of net sales)

(2.5

)%

(2.9

)%

(0.3

)%

(0.7

)%

Adjusted EBITDA margin (adjusted EBITDA as a percentage of net sales

2.5

%

2.1

%

4.5

%

4.4

%

Adjusted EBITDA margin before other income and charges (adjusted EBITDA before other income and charges as a percentage of net sales)

2.3

%

4.1

%

4.8

%

5.9

%

(1) Adjusted EBITDA represents operating income (loss) before deduction for the following non-cash charges: (i) depreciation and amortization expense; (ii) loss on impairment of tangible and intangible assets; (iii) loss on disposal of assets; and (iv) stock-based compensation expense.

Sloane & Company

Erica Bartsch, 212-446-1875

[email protected]

Alex Kovtun, 212-446-1896

[email protected]

Source: Destination Maternity Corporation

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